The recent meeting between Japanese Prime Minister Shinzo Abe and US President Donald Trump was a great success. The two leaders reiterated the criticality of the US-Japan alliance for peace and security in the Asia-Pacific region and agreed to strengthen bilateral and regional economic ties based on rules for free and fair trade.
On a personal level, the two leaders got along very well, with Mr Trump hugging Mr Abe on the latter's arrival at the White House and saying later that he and the Japanese leader had a "very, very good bond, very, very good chemistry". On his part, Mr Abe praised Mr Trump for exemplifying America's "dynamic democracy".
On the first day of Mr Abe's two-day visit, the two leaders met and held a press conference in Washington DC, after which they flew together on Air Force One to Mr Trump's Mar-a-Lago estate in Palm Beach, Florida, to have dinner. On the second day, they played golf and had dinner together again. When North Korea launched a missile at the end of the day, Mr Trump said "the United States of America stands behind Japan, its great ally, 100 per cent".
The summit's success came as a big relief to policymakers and political observers in Japan. Given Mr Trump's repeated criticism of Japan as a security free rider and unfair trader, there had been concern that Mr Trump might demand major concessions from Japan. He could have demanded that Tokyo pay more for the US military presence in Japan, send troops to fight against the Islamic State in Iraq and Syria, and accept a bilateral trade agreement on terms much more favourable to the US than in the Trans-Pacific Partnership (TPP).
Contrary to those pessimistic expectations, Mr Trump reiterated US' commitment to defend Japan, including the Senkaku Islands whose sovereignty is contested by China. He also declared the US' commitment to defending Japan against North Korea through the "full range" of its military powers.
Mr Trump agreed to have Vice-President Michael Pence take the lead in bilateral economic and trade talks with Japan, which is good news for Tokyo as Mr Pence was a TPP supporter and has served as governor of Indiana - a state where many Japanese enterprises, including Toyota, operate.
Unfortunately, the TPP has not survived Mr Trump's objection. But the two countries reaffirmed the importance of "their continued efforts in promoting trade, economic growth, and high standards throughout the Asia-Pacific region", keeping the TPP's spirit alive. Moreover, Mr Trump gave Japan the go-ahead to advance "regional progress on the basis of existing initiatives", such as the Regional Comprehensive Economic Partnership.
ISSUES ON THE HORIZON
So far, so good. But what lies ahead in the US-Japan relationship?
It was not surprising that Mr Trump did not demand that Mr Abe pay more for US troops stationed in Japan as Tokyo is already the largest provider of "host-nation support" with an annual contribution of US$2 billion (S$2.8 billion). That is more than double the amount that Germany and South Korea each provide.
Technically, a US-Japan bilateral free-trade agreement (FTA) on terms similar to those of TPP would not be a bad thing. However, that might not be enough for Mr Trump who has trashed TPP as an unfair trade agreement. If the future US-Japan economic dialogue becomes a politicised and confrontational process, that could undermine not only the fair and open international economic order but also the health of the US-Japan alliance.
What could become an issue is Japan's defence expenditure, which is only 1 per cent of the country's gross domestic product (GDP). That is small if compared to the US' defence expenditure of 3.3 per cent of GDP, Australia's 1.9 per cent, and South Korea's 2.6 per cent. The US is demanding its Nato allies spend 2 per cent of their GDP on defence. The US could demand the same of Japan going forward.
In terms of military equipment, what could become an issue is Japan's decision on the purchase of the Terminal High Altitude Area Defence (Thaad) missile defence system. Japan has already decided to buy expensive military equipment such as F-35 fighters, V-22 tilt-rotor aircraft, and AAV-7 amphibious landing vehicles from the US. If Tokyo decides to also acquire the Thaad system, that would certainly please the US President.
Mr Abe has already made it possible for Japan to use force in support of US military operations by reinterpreting Japan's Constitution. Japan's defence expenditure started growing again when Mr Abe came into office in 2012. However, Japan's contribution to international peace and security is still limited when compared with that of other large, developed countries. Mr Abe assured Mr Trump that Japan would assume "larger roles and responsibilities" on security matters. He will be forced to follow up on his words.
Even more challenging are economic issues. The two leaders agreed to initiate a new US-Japan economic dialogue to discuss macroeconomic issues, including fiscal and monetary policies; cooperation on infrastructure, energy, cyber security and space; and the bilateral trade framework.
Mr Trump has blamed the cheap Japanese yen for obstructing sales of US goods, and US car makers support his argument. While Japan has not intervened in the foreign currency market to keep its currency from appreciating, the Abe administration's expansionary monetary policy - one of its three key economic policies - has been a factor in the yen's depreciation. If the US demands that Japan adjust this policy, that would be a major blow to Mr Abe's economic strategy.
Bilateral trade talks pose another challenge. The Trump administration is committed to reducing the US trade deficit and bringing more jobs to the US. In this regard, China will become a major target with its massive trade surplus of US$347 billion vis-a-vis the US. But Japan might also take heat with its trade surplus of US$69 billion with the US, second only to China.
As long as US-Japan trade negotiations proceed professionally, there is not much for Japan to worry about. The Japanese market is already very open to foreign goods, including cars. Toyota has 10 production sites in the US, creating jobs for 365,000 men and women. In fact, it is the US that still maintains a 25 per cent tariff on pick-up trucks to keep some of the US auto products in the market.
Technically, a US-Japan bilateral free-trade agreement (FTA) on terms similar to those of TPP would not be a bad thing. However, that might not be enough for Mr Trump, who has trashed TPP as an unfair trade agreement. If the future US-Japan economic dialogue becomes a politicised and confrontational process, that could undermine not only the fair and open international economic order, but also the health of the US-Japan alliance.
Mr Trump and Mr Abe must work hard hand in hand going forward. They hold the key to peace and prosperity in the Asia-Pacific region.
•The writer is a professor and the director of the Security and International Studies Programme at the National Graduate Institute for Policy Studies in Tokyo.
A version of this article appeared in the print edition of The Straits Times on February 24, 2017, with the headline 'So far, so good but what lies ahead for US-Japan ties?'. Print Edition | Subscribe
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